SENATE BILL NO. 312 "An Act providing for a reduction in the excise tax to $34.50 for a passenger for each voyage on a commercial passenger vessel; providing for a reduction in the state excise tax imposed on a passenger on a commercial passenger vessel by the amount of tax on a passenger traveling on a commercial passenger vessel imposed by a municipality that does not elect to receive an appropriation of a portion of the proceeds from the state tax; authorizing an appropriation from the proceeds from the excise tax imposed on a passenger on a commercial passenger vessel for state- owned infrastructure to properly provide for commercial vessel or passenger visits; requiring a municipality receiving funds appropriated from the excise tax imposed on a passenger on a commercial passenger vessel to use the funds to improve port and harbor facilities and other services and infrastructure to properly provide for commercial passenger vessel or passenger visits; limiting the reduction for the excise tax imposed by a municipality on a passenger on a commercial passenger vessel to $17.25 a passenger for each voyage; requiring the Department of Commerce, Community, and Economic Development to prepare and submit a report on the needs of communities to safely and efficiently host passengers subject to the state tax imposed on a passenger on a commercial passenger vessel, and to summarize the extent to which appropriations from the state tax have been used to defray the costs of meeting those needs; eliminating the authority to appropriate funds received from the excise tax imposed on a passenger on a commercial passenger vessel to an area of the state that is not one of the first five ports of call in the state for a commercial passenger vessel carrying a passenger subject to the state excise tax imposed on a passenger of that vessel; and providing for an effective date." 10:10:17 AM DARWIN PETERSON, STAFF, CO-CHAIR STEDMAN, discussed the legislation. SB 312 proposes to reduce the commercial passenger vessel (CPV) excise tax from $46 per passenger to $34.50 per passenger traveling on a commercial passenger vessel in state marine waters. The bill will also allow a reduction in the amount of the tax for taxes paid to a municipality that levies its own passenger fee. The reduction could not exceed 50% of $34.50 regardless of the amount of passenger fees charged by other communities. In addition, SB 312 repeals the regional cruise ship impact fund. As a result, all revenues collected from the CPV tax would be deposited in the CPV tax account in the general fund. SB 312 will not affect community revenue sharing. Finally, SB 312 will require the Department of Commerce, Community and Economic Development to create a report every three years that addresses the projected needs of the communities that host cruise ship passengers and the extent to which the tax proceeds have been utilized for projects in areas that are directly impacted by cruise passengers.   10:11:38 AM CURTIS THAYER, DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, discussed tourism and the vessel passenger tax. He informed that the department is supportive of the actions outlined in the bill and he underscored the urgency to take action this session. The governor proposed legislation that included the exact provisions included in this bill. He believed that both elements were needed to make Alaska a destination by increasing the Alaska tourism marketing program. The department published a study showing that tourism impacts Alaska's economy. Following many decades of growth in the tourism sector, a decline is now faced. Travel to Alaska was off by more than seven percent. He noted that visitor spending decreased by $270 million. The cruise industry has already signaled a willingness to be a partner in the solution by agreeing to drop the lawsuit against the state if the head tax is reduced. The state is likely facing a two year delay until cruise ship passenger volumes increase. Cruise lines indicate that they can refrain from making final decisions in 2012 following decisions by the legislature. 10:17:15 AM Senator Thomas asked about the regional fund. He asked if money from the regional fund is designated to the commercial vessel tax account, could the funds then be appropriated to areas other than those directly related to the five ports of call. 10:17:55 AM CHRISTOPHER POAG, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW reported that all tax proceeds go into the general fund and can be appropriated for any public purpose. The guidelines in the bill are for the legislature regarding the spending of the proceeds. He noted that the legislature has the authority to appropriate the proceeds for any public purpose. Senator Thomas clarified that the language in the initial bill led to difficulty, so removing the wording alleviates the potential problem and eliminates the lawsuit. Mr. Poag added that one argument made by the industry is that spending the proceeds in non ports of call was unconstitutional and in violation of federal law. Senator Thomas asked if the agreement was written. Mr. Poag responded that the written agreement has been modified with alterations in the format and signature block. He opined that the progress was good. He anticipated that an agreement would be executed by the end of the week. Senator Olson opined that the governor was predicating the passage of this legislation on a promise to increase the number of cruise ships visiting Alaska without reference to the number of passengers on the ships. He asked if the department was in favor of establishing a trial period to determine that the legislature will deliver an effective and a sunset date to test the promises made by the cruise ship industry. Mr. Thayer responded that a sunset clause for the provision has not been discussed. He supposed that two to three years is required to determine the ship deployment schedule. He pointed out that Europe is growing and building additional cruise ships that are not coming to Alaska. 10:21:53 AM Co-Chair Stedman asked about the statute change for head tax and the money for the general fund. Mr. Poag noted that litigation is in progress. He stated that the position of the industry is that federal law places strong restrictions on how the proceeds can be spent. The issue is litigated until the court issues an order. Proceeds are spent on direct attributable benefits to passengers, the places they go, the services they require, and the infrastructure utilized. The proceeds ought to be spent on those types of projects. 10:23:57 AM Senator Olson wondered if the legislature was willing to allocate the funds to areas other than the five ports of call, is that a violation of the agreement to drop the lawsuit. Mr. Poag responded that the key terms of the agreement are for the reduction of the tax rate. If the reduction and the offset come in this bill or another bill and are signed into law, the terms of the agreement state that they will dismiss the pending law suit. The periodic review process is geared toward looking at the methods used by the state to utilize the proceeds. A sunset clause is an option for the committee to consider, but it might disrupt the stability of the tax proceeds coming in on a yearly basis. 10:25:22 AM Senator Thomas asked if the case is dismissed would be dismissed with or without prejudice. Mr. Poag responded "with prejudice." 10:25:59 AM MR. JOHN BINKLEY, ALASKA CRUISE ASSOCIATION, FAIRBANKS, testified in support of the legislation. He informed that the goal of the legislation is to reach out to the cruise ship industry and make changes that encourage the industry to invest in Alaska. He stated that the administration framed the issue correctly. He noted that key elements include the agreement that the litigation would end. He noted that the latest version of the agreement arrived at six o'clock this morning and is vetted through the legal departments of the companies involved. 10:29:05 AM KARL AMYLON, CITY MANAGER, KETCHIKAN (via teleconference), testified in favor of SB 312. He stressed that the loss of cruise ship passengers is having a negative effect in Ketchikan. The city is anticipating a revenue loss of $2 million in 2010. DAN BOCKHORST, CITY MANAGER, KETCHIKAN (via teleconference), testified in favor of SB 312. He echoed the comments of Mr. Amylon. He stressed the urgency of the matter. 10:31:38 AM TOM SMITH, CITY MANAGER, MUNICIPALITY OF SKAGWAY (via teleconference) testified in support of the legislation. He expressed concern with Section 5. He advised the committee to scrutinize the bill. 10:32:47 AM TIM CERNY, FAIRBANKS ALASKA, ALIANCE FOR CRUISE TRAVEL (ACT) (via teleconference) testified in support of the legislation. He explained that ACT has over 200 members in the Fairbanks area who would unanimously support SB 312. He stated that the bill would benefit the Fairbanks economy and the tourism industry. DEB HICKOK, FAIRBANKS CONVENTION AND VISITORS BUREAU (via teleconference), testified in support of the legislation. 10:35:31 AM RICK ERICKSON, ALASKA ACT, KETCHIKAN (via teleconference), testified in support of the legislation. He represented 20 members of Alaska ACT. He noted that this bill proves that Alaska is open for cruise ship business. PATTI MACKEY, EXECUTIVE DIRECTOR, KETCHIKAN VISITORS BUREAU (via teleconference), testified in support of the legislation. She spoke in favor of the reduction of the head tax. She stated that tourism supports approximately 1500 citizens. She stressed the need for marketing that will bring tourists to Alaska. Businesses report a 20 percent loss in income for the last tour season. She sought a long term solution for marketing Alaska tour options. 10:39:00 AM JOSEPH LONHAM, ALASKA ACT, KETCHIKAN (via teleconference) testified in support of the legislation. He informed that vacation is the number one use of funds for those seeking information about financial planning with Wells Fargo. Small business expansion drops without the cruise ship industry. 10:41:38 AM DICK COOSE, SELF, KETCHIKAN (via teleconference) testified in support of the legislation. He advocated for the reduction in the cruise ship industry head tax. REX WESTERGARD, ALASKA ACT (via teleconference) testified in support of SB 312. 10:42:52 AM FRED REEDER, ALASKA ACT, SURVEY POINT HOLDING COMPANY, SITKA (via teleconference), testified in support of the legislation. He noted that the economy in Sitka is profound. He believed that the legislation allows those communities that have a head tax to be discounted from the state head tax. Revenue losses for Sitka are estimated to be over $1.5 million in comparison to 2008. He opined that the city of Sitka will lobby the legislature for an increase in municipal revenue sharing to help offset this decline in their sales tax receipts. 10:45:00 AM BONNIE QUILL, EXECUTIVE DIRECTOR, MATSU CONVENTION AND VISITORS BUREAU (via teleconference), testified in support of SB 312. 10:46:45 AM PAUL LANDIS, CHIEF OPERATING OFFICER CIRI TOURISM CORPORATION, ALASKA ACT (via teleconference), testified in support of the legislation. He stated that businesses rely on the cruise ship industry. He stressed that the operations and jobs depend on cruise ships returning to Alaska. He opined that the head tax is driving ships away. 10:49:18 AM TAMMY GRIFFIN, ALASKA HOTEL LODGING (via teleconference), testified in support of the legislation. She thanked the co-chairs of the committee for introducing the legislation. She stated that her company does not have a contract with a specific cruise ship company, however, she benefits from cruise ship visitors. SUSAN GILPATRICK, GILPATRICK'S HOTEL CHITNA AND GREENHOUSE (via teleconference) testified in support of the legislation. She stated that Valdez is a tourist destination and the trickledown effect of the tourism benefits her local business. She spoke about the importance of marketing efforts. 10:53:24 AM DEAUTUA CROCKETT, RESOURCE DEVELOPMENT COUNCIL, ANCHORAGE (via teleconference), testified in support of the legislation. She noted that the head tax compromises the economy in Alaska. COLLEEN STEPHENS, STAN STEPHENS CRUISES (via teleconference), testified in support of the legislation. She acknowledged the economic downfall and its effect on her business. 10:55:53 AM CHIP THOMA, PRESIDENT, RESPONSIBLE CRUISING IN ALASKA, testified about the use of the collected head tax over the last ten years. He pointed out that Juneau collected over $50 million in ten years and the funds were used for dock improvements for the cruise industry. The purpose of the head tax initiative was to provide important services that benefit the cruise ship industry. He supported the legislation, but supposed that it could be improved. He proposed a decrease of 15 percent of the head tax. He disagreed with Section 5. He noted that the fund is shared by all 12 ports of call. All 12 ports can apply for projects from the fund. He opined that the head tax money has been spent in admirable ways that benefit the passengers and the cruise ship industry. JOE GLEDHOF, LAW OFFICE OF J.N. GELDHOF, urged removal of the regional account. He stated that there will be a time to lower the excise tax. He stressed that the needs for infrastructure and the benefit of the tax. He opined that allowing the further deduction from a reduced excise tax was premature. He stated that Juneau and Ketchikan require completion of the new wharfs. He explained that he was not opposed to a reduction or partial elimination of the excise tax, but he opined that now was not the time. He stressed that work on the effective dates would prove helpful. 11:02:51 AM MIKE STEDMAN, VICE PRESIDENT, WINGS AIRLINES, MEMBER, ALASKA ACT, testified in support of the legislation. He stated that twenty percent of the aircraft fleet will be laid off this summer as a result of the head tax. 11:03:59 AM JEREMY GIESER, GASTINEAU GUIDING, testified in support of the legislation. BOB JANES, PRESIDENT, GASTINEAU GUIDING, testified in support of the legislation. He stressed that the conservative route is to lower the tax and continue to encourage the industry to expand. ROARK BROWN, HOMER OCEAN CHARTERS, testified in support of the legislation. He spoke of his group which supports the governor's initiative to restore the health of Alaska's travel industry. He stressed that the legislation must be passed to bring cruise passengers back to Alaska. 11:08:00 AM SANDRA LOOMIS, TALKEETNA AIR TAXI testified in support of the legislation. She stated that her business does not have direct contracts with the cruise ship industry, yet her business reflects the industry's decline. 11:10:41 AM TANJA CADIGAN, OWNER, CARIBOU CROSSINGS, testified in support of the legislation. She stated that she owns a small business in Juneau that struggled last summer due to the economic downturn. BRET CARLSON, CHEF, COLDFOOT/DEADHORSE testified in support of the legislation. He mentioned various methods of income generation that are affected by the drop in tourism. The head tax reduction addresses the creation of wealth. 11:15:22 AM JACK POLSTER, SELF, HOMER (via teleconference) testified in opposition to the legislation. He requested that the bill be given more attention. 11:18:49 AM Co-Chair Stedman mentioned the fiscal note from the Department of Revenue reflecting an annual loss of $22 million in cruise passenger vessel receipts. SB 312 was HEARD and HELD in Committee for further consideration.